combining classic investment strategies

Discussion in 'Financial Planning' started by dumbstruck, Jul 8, 2011.

  1. dumbstruck

    dumbstruck Guest

    Is there any reason you shouldn't combine investment strategies? If
    you consider Value, GARP, Mean Reversion, or Momentum... how about
    pairing them up?

    For example, Value or Mean Reversion strategies alone probably will
    eventually pay off, but for how many years or decades can you afford
    to wait (witness 1970s)? How about pairing GARP with Mean Reversion so
    that the (growth at a reasonable price) will filter your M.R.
    candidates down to those already showing earnings improvement? Less
    dead time. Or you could pair Value candidates with Momentum under the
    same principle.

    What I like pairing Momentum with "skeptical sectors". Not sure how to
    name the latter - not the dogs or the disdained since they may be
    appreciated, but they are knee-jerk under-appreciated. So they don't
    get overbought by momentum players and crash, but ascend in a medium
    speed that just keeps going and going.

    This seemed true for years in emerging stock markets, which many
    investors just stereotyped as banana republics with poor accounting.
    Now that sounds more a description of the developed world, but anyway
    roaring E.M. stock markets finally priced in their great economies and
    have hit a pause.

    Lately I have applied that principle to GLNG which profits from the US
    pushing away logical energy choices in favor of subsidizing looney
    popular alternatives. GLNG ships clean energy from under-appreciators
    to countries where logic still rules. Caveat: not a current
    recommendation. You could have bought it cheaper when I mentioned it 3
    months ago (up 30% since then, 150% in last 6 mo, or 300% in 12) but
    now better to find something cheaper on your own.

    So to ape the GARP acronym... how about MOSS for Momentum Of Skeptical
    Sectors? I would rather hit an etf sector rather than a volatile stock
    - maybe someone has special knowledge of one being held back by a
    popular false assumption?

    Another crazy idea is MVOV Mean Reversion of Volatility. Isn't
    volatility (such as measured by VIX or VIXY) more cyclical in a
    pronounced way vs stock prices? Not upward biased:
    http://finance.yahoo.com/q/bc?s=^VIX&t=my&l=on&z=l&q=l&c=^GSPC
     
    dumbstruck, Jul 8, 2011
    #1
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  2. dumbstruck

    dapperdobbs Guest

    On Jul 7, 10:10 pm, dumbstruck <> wrote:
    > Is there any reason you shouldn't combine investment strategies? If
    > you consider Value, GARP, Mean Reversion, or Momentum... how about
    > pairing them up?


    "Security Analysis" is really the Bible of investment. As with other
    great works, it sparked 'schools' of thought which are actually just
    parts of the original. SA spends all of one page to mention
    diversification as a means of mitigating the possibility of errors in
    analysis (or natural disasters or acts of God), for example, yet that
    one notion has been developed into a vast school of averaging expected
    returns with equations it takes a super-computer to run (and which are
    according to their own authors, impractical).

    Yet SA focuses on real investment: proper deployment of capital
    resources to the most productive sectors, with an expectation of
    reasonable returns. It is based on ANALYSIS. "Value" investing and
    GARP, that you mentioned, fall into this category.

    Some other 'styles' you mention are based on probabilities or market
    movements, and are thus by definition not investing, but gambling on
    the odds. Granted, SA refers to Mr. Market, and advises to gauge his
    moods, but if you like CLNG and under-appreciated sectors, please
    consider that you're looking at a method of finding companies that are
    worth analyzing, then possibly investing in (at attractive prices) if
    the analysis reveals a solid business.

    I hope my comments offer a useful discussion. If I've misunderstood
    your meaning please reply to that effect.
     
    dapperdobbs, Jul 9, 2011
    #2
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  3. dumbstruck

    dumbstruck Guest

    On Jul 8, 2:23 pm, dapperdobbs <> wrote:
    > Yet SA focuses on real investment: proper deployment of capital
    > resources to the most productive sectors, with an expectation of
    > reasonable returns. It is based on ANALYSIS. "Value" investing and
    > GARP, that you mentioned, fall into this category.


    Garp intrigues me, sort of like combining the best of Value and Growth
    for a more nuanced view. It's a natural progression to assemble
    components you know into larger systems that would otherwise be more
    confusing and labor intensive to build from scratch. So I'm looking
    for additional workable combinations of strategies.

    But analyzing individual securities takes too much work relative to
    the potential returns in a semi efficient market. They are examined
    too well by others and are subject to too much risk (esp now
    regulatory) so I look for something that applies to chunks/sectors/
    etfs. Not something tied up in a bow like the Garp poster child
    Fidelity Magellan fund, because something so visible gets arbitraged
    or peters out.

    Maybe it has got to include the realm of investor sentiment, perhaps
    what you call gambling the odds. With the madness of crowds effect,
    some investors can simply arbitrage against faulty mass psychology
    (which doesn't always equate to contrarian) and find at times it's
    like shooting fish in a barrel. I think many here feel obligated to
    warn against such experimentation for newbies, and I would agree. Try
    them as thought experiments over 5+ years, and only commit real money
    to such approaches if it has been killing you how many actual
    successes you missed by sticking to the John Bogle mainstream approach.
     
    dumbstruck, Jul 9, 2011
    #3
  4. dumbstruck

    dumbstruck Guest

    On Jul 7, 4:10 pm, dumbstruck <> wrote:
    > Another crazy idea is MVOV Mean Reversion of Volatility. Isn't
    > volatility (such as measured by VIX or VIXY) more cyclical in a
    > pronounced way vs stock prices?


    Craziness confirmed: that strategy appears to be impractical using
    ETNs due to futures rollover/contango issues, but in the discovery of
    that I found you can actually get on the other side of that trade and
    benefit from rollover/contango: http://etfdb.com/2011/inverse-vix-etns-free-money-2/

    I don't propose this as a valid strategy, but as an emerging
    curiosity. It gave many times the return of the SP500 in the last 6-12
    months, and the article outlines how this can happen even when SP500
    stays flat. It alludes to pitfalls, but I want to see it in operation
    in the charts as such ETNs mature:
    http://finance.yahoo.com/q/bc?t=1y&s=SPY&l=on&z=l&q=l&c=xiv,ziv,ivo,xxv
     
    dumbstruck, Jul 13, 2011
    #4
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